JPMorgan: The Markets are Selling Off Today Because of BoJ

JPMorgan Chase analyst Adam Crisafulli just published some interesting notes explaining the causes of the broad market sell-off we’re experiencing today.

In a research note to clients, Crisafulli says:

The SPX is giving back the entire Mon rally due to ongoing yield anxiety ahead of the 9/21 BOJ meeting. The market never had a Fed problem but it does face a BOJ one and unfortunately clarity on Japanese monetary policy won’t come for another week (the comprehensive assessment is 9/21, the same day as the FOMC decision).

Other than this issue there isn’t much else to talk about and that is another headwind (the death of news is helping yield-driven fears to propagate uncontested). In addition to the focus on yields and multiples, the contours of the US presidential race shifted materially over the weekend and polls due out over the balance of this week and next will prob. reflect that (i.e. polls will prob. tighten further and Clinton’s +3 RCP average may wind up disappearing).”

As for the bond market purge:

Nothing really “happened” to spark the yield rise but the same old worries are playing a role, namely anxiety ahead of the BOJ meeting 9/21. Portugal’s 10yr yields are up ~9bp and in focus ahead of the DBRS 10/21 decision (a d/g from DBRS would render Portuguese bonds ineligible for the ECB APP). In the US Treasury yields are higher across the curve and the curve is steepening (2, 5, 10, and 30yr yields are up 1, 3, 4, and 3.7bp, respectively).

So while most investors are focused on next week’s Federal Reserve meeting, Crisafulli says the markets are experiencing anxiety instead from the Bank of Japan. That central bank is reportedly reconsidering its entire policy stance as evidence mounts that Abenomics may not actually be working, and that negative interest rates may be a mistake.

SPY-2016-09-13

Unlike on Monday this week, stocks are not recovering from an early drop. The SPDR S&P 500 ETF Trust (NYSE:SPY) fell $3.82 (-1.77%) to $212.58 per share in Tuesday afternoon trading, hitting fresh session lows and erasing all of Monday’s bounce after Friday’s big sell-off.

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